1. During the recession my sales dropped by about 25%. I made cuts in overhead, my salary and everything possible I stayed current on all payables but the bank froze my line of credit. I can’t grow the business back without some credit. How do I get the financing I need to grow?
This is a fairly common concern. The number one issue I see with small businesses is undercapitalization, and this can cause failure more often than I care to admit. If the business in question is recovering in recent months or in 2010, I would recommend speaking to the commercial loan officer with a written business plan in hand and projections. If the plan is strong, and includes how the projections were determined, perhaps a portion of the line may be termed out, and the remaining funds could be used to fund temporary WC needs.
Offering to pledge additional personal guarantors and additional collateral may also help. For example some lenders may take W-2 salary from a different source as possible repayment from a new guarantor not affiliated with the business. A spouse would be a prime example. Additional collateral like real estate with lots of equity may also tip the scales.
If this doesn’t change the lenders decision I recommend alternative financing assuming there are good assets available, like real estate or non-delinquent accounts receivable, or lastly, an equity investor. Contributed by Ed Nunes, TD Bank.
There are a number of alternative funding sources that might be available to provide additional cash to finance your recovery. In general, these sources are structured to work with a certain asset or transaction structure, so it is important to get the right fit. Some examples would include a Sale/leaseback on equipment that you own; Purchase Order financing for pre-sold inventory; Factoring of your accounts receivable. These sources rely more on the strength of the transaction rather than your most recent financial results, so they will work when traditional bank loans are not available.
Each business is a little different and must be evaluated to determine what funding source is the best fit. What is your product or service? Who are your customers? How do they pay you? What are the assets of the business? What is your current capital structure? What is the ownership structure? A good match-up can provide the liquidity you need with a cost structure that is manageable. Most financing representatives are well versed in the available alternatives and can get you started. If you prefer, there are financing consultants that specialize in arranging small business financing.
Contributed by Tom Hastings, The Interface Financial Group
2. I need to figure out how to deal with the new health care laws. How do I go about it without losing employees or destroying my bottom line?
The short answer to this question is that, for right now, there is no material impact on what we have available in Massachusetts.
Many of the issues nationally are already in place here in Mass, (unlimited lifetime benefit, no pre-existing condition clauses, etc), which is why our rates are so high.
You will see new products introduced for small businesses, such as the Blue Cross Tiered Networks, or Harvard Pilgrim Focus Plan, which will be marketed as cost savers compared to their traditional HMO plans. Employers may have more choices, but the premiums will continue to be a challenge for all!
Contributed by Vanessa Costa, Advantage Benefits
Health care credits:
Tax credits included in recent legislation may lower your out of pocket costs for health care up to 35% of the premium. If you fail to qualify because you contribute less than 50%, consider modifications that may increase after tax income for you and your employees. Attached is a decision tree to help you decide if you qualify. If interested in free help with these calculations, ask for help at firstname.lastname@example.org and type in that you would like us to help you make that calculation, no cost or obligation.
MA law (which is currently in force) exempts any employer with 10 or less FTE*, has one set of rules for 10 through 49 FTE* and another for 50+ FTE* (* FTE = Full time equivalent based upon 40 hours per work). For more information, go to https://www.hsainsurance.com/Health-Care-Reform.aspx.
Too little time has passed and too little implementation has occurred within the extremely short time in what became the federal law on March 23, 2010 (only six months ago). It only applies to 25 or more FTE for PLAN YEARS starting after September 23, 2010. All of us await further guidance from federal authorities.
Contributed byTarsky, Zanchi & Associates, Inc.
3. I’m in a downsizing dilemma. I run a company which provides services to the homebound elderly and disabled. Despite the economy over the past 2 years, I’ve managed to avoid layoffs until now. But now I have to cut staffing costs. I can either let a couple people go (out of 10 fulltime) or ask for across the board voluntary pay cuts (about 10%). Which do you think I should do?
It generally makes more sense to let employees go than to cut salaries across the board. There are two simple reasons. First, if you need to cut costs, it is likely that sales are down (or at least revenue). Having fewer employees will keep the productivity per employee about the same. Second, is that when things begin to get better it may be very difficult to add employees before restoring the cuts made. Keeping the same number of employees to do less work by paying them less may make productivity an issue when things pick up.
Generally, employees who take pay cuts are appreciative at first but often have motivation changes over time if the lower compensation continues for very long.
Contributed by Bob Feige, CEO Mindshare.